Overlooking disability insurance can be costly

A: If you have a highly specialized job or can simply afford to pay the premiums, it's worth paying extra to have an "own occupation" policy. This coverage pays benefits if you are unable to perform the major duties of your own occupation. To trim some of the costs, it may be advisable to obtain "own occupation" coverage for one or two years and "any occupation" coverage after that.

The length of benefits is key, and will affect the cost of premiums significantly. Some policies pay benefits until age 65 or until your full retirement age for Social Security benefits, others for two or five years. Seek out a non-cancellable policy.

You probably also want a policy that will pay "residual" benefits, which will compensate for a decline in income if you are able to work at a new job that pays less.

Q: How much does disability insurance cost?

A: Prices vary based on age, gender, occupation, amount of coverage and health status. Check with a broker to get quotes from at least three different insurers.

For someone who does not have coverage at work, a plan with all the extras including inflation protection costs roughly 2 percent to 2.5 percent of annual salary for a man, and 3 percent to 4 percent for a woman. Women pay more because they file claims more frequently and for a longer duration than men.

If someone has coverage at work but wants earnings to boost benefits to 80 percent salary replacement, the annual cost is typically about 1 percent of the worker's salary.